Disruptive Technology – The five Principles on which it runs

Disruptive Technolgy

The disruptive technology also has certain principles which explain how it behaves.

Principle 1: Resources are with Customers and Investors and not with the companies.

The established big players in the market embrace even the complex sustaining technology, while regularly faltering with simple disruptive technology. This is because they depend on customers and investors for their resources. Managers how good they may be think otherwise. They think that they control the resources, and this is their bane. So they try to kill the emerging disruptive technologies, because of low margins. They do not invest in these technologies, and instead build a defensive stance. The products based on disruptive technology ultimately win in the end. They have the basics of being popular with customers as they are cheap and user friendly.

So, how do the big companies counter this threat which will eventually lead to their downfall? The answer is setting up independent departments or an organization is the answer. Doing this they protect themselves from future failure and also keep on doing their current business with strength. These independent organizations work on lower margins and their main function is to keep tap on the technology as well as their demand progress. This is the only way the bigger companies can align with the forces which control the resources.

Principle 2: Large companies’ growth needs are larger and not satisfied with small markets

Disruptive technology invariably leads to the emergence of new markets. The companies that enter these markets early have the advantage over those who enter later. These smaller markets might engulf the earlier markets and become the major market in the future. The larger the company the more difficult it become for it to invest in these smaller markets. A company with $20 million turnover needs only $ 2 million increase for 10% growth while a $ 200 million company requires $20 million for the same rate of growth.

New markets are never large enough for the jumbo sized companies. So the larger is the company in terms of revenue the lowest it invests in new markets. This is the reason for the downfall. Hence the solution of Principle 1 stands here too. The big players need to have dedicated smaller companies to take care of the opportunities in the emerging new markets.

Principle 3: Non existing Markets cannot be analyzed

The well managed companies plan and execute their plans very well. When these techniques are applied to sustaining technology they work wonders. The size and growth of the existing markets can be known by market research. Since most of the innovations are sustaining the managers can garner huge profits.

However these techniques do not work with disruptive technology. Market Research, planning or forecast works best with existing markets rather than with markets which are not known. The marketing and planning techniques are tailor made for the sustaining technologies hence do not work with disruptive technology. The approach which works here is taking two courses – One for the forecast and another against it. Taking this approach the company loses money to a small extent but ensures non-failure.

Principle 4: Strength of an Organization becomes its weakness.

A well developed organization has (1) a well established process of doing things. (2) The value system of the organization. These are the strengths of the organization and have taken them to their current position in the market. They work very well with sustaining technology but fail with disruptive ones. Both process and values tend to be less flexible. This turns out as the weak link in case of emerging disruptive technologies.

New capabilities developed for the disruptive technology will help the organization on this front. The organization has to look above its processes and values, and build capabilities specific to the new technology if it seems to be disruptive.

 Principle 5: Supply of Technology is not equal to market demand

The products developed through disruptive technology initially have very small market. But over an undefined period they become established products and competitive. The bigger players work on bigger margins and leave out the small margin market. Here is where the disruptive technology thrives. The low cost and extra features make it a real threat, and by the time the big organizations realize it is too late.

There have been many developments and in the future there will be more. The products which are simple and cheap but not in demand now are bound to become more popular with time. They will encompass all markets and threaten all major companies. The companies which are unable to cope-up with this new challenge are bound to fail. The managers have to recognize these disruptions and act in a manner which will ensure that they harness the advantages rather than let the opportunity go.

 

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